Economic Tsunami of 2009

Before you ask" "why should I give any credence to this article?" Please
take a couple of minutes to read my 2008 assessment - written in Dec 07: Ushering
a new Economic Era.

Though I hope that I'm wrong in my bleak 2009 outlook below, these are my
expectations as I see things today. Ultimately, the data (12 months from now)
should tell us whether or not I was right.

Economic Tsunami of 2009

The US is still in the early stages of a growing global economic crisis, combined
with a tectonic monetary transformation, yet many American's are merely in
a daze and struck with surreal disbelief - like a group of tourists wandering
the beach in Phuket, Thailand after the waters receded... This awe inspiring
event has never been seen before and most are oblivious to the fact that this
is just the breathtaking precursor to a disastrous outcome, so the ignorant
masses stay put - trying to grasp the unreal - incognizant of the devastating
consequences of their inaction...

The waters started receding in 2008 and as the year comes to a close, the
tide is now fully pulled out to sea... 2009 however will likely cause mother
nature to reverse these forces quickly, and the first wave of this massive
economic tsunami, building on the horizon for over a year now, will finally
come crashing ashore with quite destructive results.

My personal 2009 expectations:

- US Job Market to get much worse and will be the "hot topic" discussed in
the mainstream media; The BLS officially published and severely understated
U-3 unemployment rate will easily cross the 10% threshold in 2009. (link
to the real US unemployment picture)

- Housing market will continue to crater while prices fall unabated - due
to increasing unemployment, resetting ARMs, inability to refinance, and more
people (who CAN afford their mortgage) merely "walking away" - out of disgust/exasperation
that banks refuse to work with them (the responsible borrowers/homeowners)
while they continue to reward the irresponsible. Home sales however, may likely
start to pick up, as those who 1) have a job and 2) can qualify take advantage
of better mortgage rates and homes become more affordable - but the number
of new buyers will significantly lag behind the pervasive increase in foreclosure
rates, so home inventories will continue to build while prices fall.

- Bailouts Galore; we're already $8.6 Trillion into this bailout mess (link
to 2008 bailout figure)), so what's several more trillion in unpayable
(aside from inflation erosion) taxayer dollars? I anticipate we will see
bailouts for California, Michigan and others; more money for AIG, the Bond
market, Infrastructure improvements, additional stimulus checks for the masses,
etc. link
to the money hole

- DOW to test the 6,000 range; though we will see a few nice bear-market rallies
before and after, the 6,000 range will likely be tested - but don't think this
will be the "ultimate low", as that should come later. link
to DOW, where's the floor?

- US Dollar to fall to lowest levels in history; with all the new bailouts
and increasing debt levels of the US Gvt, the dollar will lose its prestige
as a global monetary safe haven and will ultimately test the 65 level (and
possibly lower) on the US Dollar Index - sparking a new round of consumer inflation
for the masses. The US dollar won't lose its reserve currency status in 2009,
but it will in due time. link
to Dollar: faltering foundation of US economic strength

- Treasury bubble pops - a flight to safety ensued in late 2008 and Treasuries
were the vehicle used. High demand caused rates to fall while face values rose.
When the Treasury bubble bursts in 2009, traders will be crushed as rates rise
and face values fall. As this happens, the buying price of the bond drops and
thus, traders will have to sell currently owned bonds for less than what was
paid.

- Derivatives unwind; over a quadrillion (a thousand trillion) dollars in
derivatives existed at the height of this economic bubble - part of the reason
for our "slowed and controlled" economic implosion. Our monetary masters (AKA:
The Plunge Protection Team - PPT) have thrown everything - including the kitchen
sink, at our banks, markets and economy - to prevent a massive unwind of this
monsterous derivatives complex. From what I understand, much of the froth in
these notional derivatives have already expired/bled off, yet we are still
stuck with about $700 Billion outstanding. If the PPT can keep our house of
cards afloat for another 18-24 months, these too will expire and the biggest
threat to our global economy will have blown over, but I think we're going
to see some fireworks first. If AIG, Fannie/Freddy, GM, Citigroup or a big
someone else implodes, they will set of a chain of cascading counterparty derivative
dominoes - insurance bets that can't be paid.

- Complete US Banking System Nationalization and/or Banking System "Holiday" (shutdown);
hundreds of new bank failures will likely lead to public panic, banking runs
and gvt imposed withdrawl limits; which will ultimately lead to nationalization
and/or a banking system holiday. If a holiday IS imposed, ATM machines, banks
and electronic commerce will be shut down across the nation (as the government
tries to figure out what to do). People will grow anxious as their credit/debit
cards don't work and they're unable to buy food, gas - anything. It may be
wise to keep some cash under the matress (just in case). link
to banking system shutdown?

- Gold crosses through $1,200 on it's way to meet its 2010 or 2011, one-to-one
ratio with the DOW.

- US Economic Depression is declared; it took a year of looking at backwards
data for the "experts" to finally declare that we've been in a recession the
whole time - a year now! If we experience just four more months of the same,
it will be an economic downturn and predicament not seen since The Great Depression.
Well folks, the ingredients are already baked into the cake...

Closing:

Ultimately, 2009 will be quite bad as that first tsunami wave crashes ashore,
but it's only the first of many and once the waves end, we've still got flooding,
carnage, destruction and cleanup to deal with. Let's just hope that these events
don't lead to a complete breakdown in society. link
to Social Implications of a Significant Economic Downturn

Disclaimer: These articles merely reflect the opinions of this author
and are by no means a guarantee of future economic conditions. Though the author
strives to provide accurate and relevant data, he sometimes relies on external
sources and cannot assure the reader of the accuracy contained within. Additionally,
these articles are provided for INFORMATIONAL PURPOSES ONLY and are NOT MEANT
to provide investment advice to anyone. For investment advice, please consult
with your professional financial planner.